'I love liberty by taste," wrote Alexis de Tocqueville to his new friend, John Stuart Mill, in 1836, "equality by instinct and reason." Mill had just put the liberal French aristocrat on the English-speaking map with a review of his De la Democratie en Amerique: but it was his own 1859 masterpiece, On Liberty, which gave Victorian liberals their call to arms - the Liberal Party was formed later the same year - and became the New Testament of liberalism.

Mill has recently been voted Britain's Greatest Liberal, and his book is frequently quoted by politicians seeking a dash of gravitas and a splash of liberalism for their speeches. Rhetorically, the cause of liberty is prospering. David Cameron insists on the label liberal conservative, David Miliband proudly declares himself a liberal socialist, and Gordon Brown recently gave a speech on liberty in which he mentioned the L-word 74 times. The Prime Minister told a stirring "British story of liberty"; but no amount of contortion of this narrative allowed him to move smoothly on to compulsory ID cards and two-month imprisonment without charge. Brown appears to have warmed a little to Mill: in 2005 he declared that "most of us reject Mill's extreme view of liberty", but in his more recent offering quoted with approval Mill's view that compulsion was sometime necessary to support and maintain liberal societies - "there are many positive acts for the benefit of others which he may rightfully be compelled to perform". (Mill had in mind duties such as giving evidence in court.)

The Conservatives are also attempting to wrap themselves in liberal clothing. They can point to their opposition to ID cards and apparently greater commitment to giving individuals more power over the operation of monolithic public services; warm noises about co-operatives also hint at a more liberal outlook. But there is nothing remotely liberal about Tory attitudes to families, international cooperation or rights in the workplace.

The Liberal Democrats have a default claim to the liberal mantle, although it is not always greatly treasured: Paddy Ashdown tried to persuade his party to become simply the Democrats. The Lib Dems still have a strong Fabian faction, represented by the old SDP-ers, the latest incarnation of what Keynes dubbed the "watery Labour men" of the liberal movement. Under Nick Clegg it seems likely the party would become a more clearly liberal democratic, rather than social democratic, party.

For all the warm words, liberalism itself is in poor political health. The two main parties are playing liberal costume games, while the third, because of first-past-the-post voting, remains a bit-player of the political world. Current discussions of "liberty" almost always end up focusing on the narrow, legalistic concept of civil liberties - a vital issue, but only one branch of liberalism. There is grave danger that when civil liberty is detached from the deeper liberalism which underpins it, the issue appears as the nitpicking concern of peers, pressure groups and professors. For many of those arguing for our civil liberties, their value is self-evident: but this may no longer be generally the case. Our freedoms cannot be adequately defended as self-evident, abstract rights, only as vital ingredients of a good life and as the essence of a good society. Without liberalism, liberty is fragile.

Free speech is not a human right, but a human need: only by constantly subjecting our opinions to criticism and possible refutation can knowledge advance. "If all mankind plus one were of one opinion, and only one person were of the contrary opinion," wrote Mill, "mankind would be no more justified in silencing that one opinion than he, if he had the power, would be justified in silencing mankind."

Real liberalism - Liberalism with a capital L - has at its heart a vivid picture of a valuable human life: one in which people have the space, resources and responsibility to develop themselves as individuals and to choose their own path. A liberal society is one in which each individual is the author of their opinions and the architect of their own life plans. Mill, in On Liberty, wrote: "The only freedom which deserves the name is that of pursuing our own good in our own way." This liberty, described as "sovereignty within" by Wordsworth, very often requires the state to exercise restraint - but sometimes needs action from government: compulsory education for children, for example, is a properly liberal measure. The greatest enemy of liberty is not coercion, but dependency: on the views of others in the making of life decisions; on the labour of others for income - for example, an idle landowner getting rich "in his sleep".

The freedom for adults to live as they choose - so long as they do not harm or depend on others - is an essential dimension of liberalism. Diverse lifestyles act as what Mill called "experiments in living", from which general lessons can be drawn. So, if cohabitation turns out to be a less successful familial model than marriage, the results will be there for all to see and absorb, rather than the "expert state" deciding for us.

It is this insistence on social and attitudinal diversity which gives Liberalism its anti-majoritarian streak. It is not that the majority are always wrong (although liberals sometimes fall into the trap of presuming they are), it is that they might be wrong and that there is no impartial referee to make the call. That includes God: religious codes must never be imposed on a whole citizenry, even if virtually the whole nation consists of true believers. To avoid offending too many Christians, Mill frequently used Islam to illustrate his arguments, citing the theoretical example of a predominantly Islamic nation banning pork as an indefensible infringement of liberty. Even if eating pork is "disgusting" to the majority, it does not harm them and, Mill insisted, "with the personal tastes and self-regarding concerns of individuals the public has no business to interfere". Mill's liberalism on this point reads more provocatively today than it did in 1859.

Liberals worry as much about social forces as government ones, and in particular the dangers of received wisdom, or what Mill dubbed the "despotism of custom". The goal of liberal philosophy, Mill insisted is "to supply, not a set of model institutions, but principles from which the institutions suitable to any given circumstances might be deduced". Liberals are often accused of ignoring the place of collective institutions and civic society in the maintenance of a civilised order, of advocating an atomistic individualism. But this is to confuse liberalism with libertarianism. Nineteenth century liberals had a borderline obsession with the role of institutions - especially families, schools and churches - in shaping individual character and creating opportunities for genuine autonomy. There was no reason to stop at social institutions: Mill believed employee-owned firms "would combine the freedom and independence of the individual, with the moral, intellectual and economical advantages of aggregate production". True liberals are unqualified supporters of capitalism - so long as we can all be capitalists.

Liberals are neither left nor right-wing, which causes some difficulties in a political culture and system still organised along these outdated lines. On tax, Mill made a sharp distinction between earned wealth, acquired through individual effort and initiative, and unearned riches, acquired through inheritance. He advocated a single rate of income tax - an idea in vogue among some right-wingers today - but also argued for supertax on inheritance to prevent the passing down between generations of "enormous fortunes which no one needs for any personal purpose but ostentation or improper power".

In a mental universe of left and right, there is a danger that liberalism is seen occupying a neutral, soggy centre - the Switzerland of political argument. True liberals are neither tame nor safe: Mill was thrown in jail aged 17 for distributing literature on contraception; threatened with death over his prosecution of Governor Eyre, who slaughtered hundreds of Jamaicans; and introduced the first bill to give women the vote, for which he was vilified in the press. "Why is Mr Mill like a tongue?" joked Punch. "Because he is the Ladies' Member."

Liberalism suffered during the 20th century. During the titanic struggle between capitalism and state socialism, it seemed to have little to say. Now liberal democracy has "won", the thoughtful efforts of the liberals of the 19th century are ripe for re-harvesting. The need to provide a more secure political and intellectual footing for our liberties is urgent. Familiarity with freedom has bred if not contempt, then perhaps complacency. Liberal society is a historic achievement, but it does not stand up on its own: each and every one of us has to make it anew. "The worth of a State, in the long run, is the worth of the individuals composing it," warned Mill. "With small men no great thing can really be accomplished."

· John Stuart Mill: Victorian Firebrand, by Richard Reeves, is published this week by Atlantic Books. www.richard-reeves.com